An investor buys a $1,000, 20 year 7 percent (interest paid semiannually) bond at par. After five years have passed, interest rates are 10 percent. How much did the investor lose on the purchase of the bond??
What will be an ideal response?
Price of the bond with 15 years (30 time periods) to maturity:? PB = $35.50 +...+ $35.50 + $1,000 (1 + .05) (1 + .05)30 (1 + .05)30? = $35.50(15.373) + $1,000(.231) = $776.74? (PV = ?; I = 5; N = 30; PMT = 35.50, and FV = 1000. PV = -777.10.)?Since the investor purchased the bond for $1,000, the loss is $1,000 ? $777 = $223.?
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